Inland Revenue says it wants to clear up misunderstanding about the effect of proposed changes to fringe benefit tax (FBT), particularly when it comes to double cab utes.
There was a warning this week that farmers buying expensive utes at Fieldays could be in for a shock if the FBT rules changed in line with proposals released earlier this year.
Federated Farmers has also warned of a “ute tax 2.0”.
But Inland Revenue deputy commissioner, policy, David Carrigan, said there were misunderstandings about the tax, including a myth that utes had been FBT-free.
“When it comes to double cab utes, these are treated no differently to any other vehicle. Unless the use of the vehicle meets all the requirements for an exemption from FBT, then a double cab ute is, and always has been, subject to FBT. That is the current law,” Carrigan said.
“Work-related vehicles are only exempt from FBT if they meet certain requirements. This includes double cab utes.”
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At the moment, work vehicles such as utes are only exempt from FBT on days when they are used for essential work purposes.
He said what was proposed was not a change to that treatment, but to remove the necessity to count days when a vehicle was or was not available for private use.
“The idea is to simplify FBT, not create additional obligations. If a business – including a farm – is not currently liable for FBT on a vehicle, then it’s unlikely they would become liable for FBT under any proposals taken forward.”
He said the aim of the FBT proposals was not to increase revenue but to reduce compliance costs of FBT.
“The government has not made any final decisions in relation to potential changes to the FBT regime and Ministers are currently considering the feedback received from submitters on the Inland Revenue issues paper with a view to refining those proposals.”
Deloitte tax partner Robyn Walker agreed there was “fake news” circulating about the FBT rules.
She said there had historically been concerns about low levels of compliance with FBT.
“This review essentially concluded that a lack of compliance with the existing laws (and lack of compliance by Inland Revenue) had the potential to erode the integrity of the tax system.
“Essentially, if taxpayers think it is okay to not comply with FBT rules, they’ll also start not complying with other tax laws.”
She said the idea that utes were completely exempt from FBT was long-standing but had never been the case.
But under the proposals released earlier this year, a vehicle used for work purposes and generally only available for home to work travel and travelling to different worksites would be “category three” vehicle with a 0% rate for FBT purposes.
“Under the proposals, if there was occasional additional private use of the vehicle, this would be ignored.”
She said the changes also opened this category up to other vehicles such as small cars and electric vehicles.
“There is a proposed rule that vehicles assigned to shareholder employees would not be able to be exempted from FBT if the vehicle has a cost of $80,000-plus.
“However, for FBT purposes, you only look at the cost of the vehicle and you ignore any ‘business accessories’.
“There is a false narrative that if a ute is purchased and it is fitted with work-related gadgets that increase the total cost to above $80,000 that the vehicle is automatically subject to full FBT. This is incorrect.”
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